Morgan Stanley's trade of the week
This might be a tough one because cable is down 150 pips to 1.31 already and a fill is unlikely but here's what analysts at Morgan Stanley have to say.
"The BoE have made it clear that they will ease further this summer, most likely at the August meeting when they have run through new forecasts on the economy. More important for GBP is the environment that economic data will come in weaker as business activity slows down. Sure, the political risks have reduced as a Prime Minister and cabinet have been appointed. The GBP reaction going forward will be in response to monetary policy expectations as a result of weakness in data. The markets will pay particular attention to survey data between now and August 4.
From the GBP side, our view goes beyond immediate trade and growth shocks, and is focused on reduced prospects for investment, and what we see as an unsustainable current account deficit. The risk to this trade is that the broader USD weakness limits any downside in GBPUSD for now," MS argues.
We like to sell GBPUSD at 1.3500 with a target of 1.2500 and stop at 1.3800."
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